Paytm’s goal is to onboard as many merchants as possible and enable them to avail and offer credit in the coming months. The hook: attractive pricing of payment terminals and transaction charges, with cashbacks as the icing on the cake, people aware of the development said.
The company has structured these cashback schemes in such a way that merchants encourage consumers to convert their purchases into ‘buy now, pay later’ option, or easy EMI schemes. This way, Paytm gets to push consumer loans, too, the sources said.
“The idea is to use attractive cashbacks to build a relationship with merchants and eventually offer them business loans and also get their customers to start using Paytm Postpaid,” said a top executive at a fintech company who requested not to be identified.
This strategy sits well with Paytm’s broader goal to become a major player in the offline payments space and use the channel to acquire customers for credit.
Discover the stories of your interest
Also read | PhonePe sets foot in Point-of-sale device market to raise heat on rival Paytm
Paytm has around 92 million monthly transacting users and claims to have around 8 million merchants using its payment solutions.
It intends to own both these channels of the merchant payment ecosystem, people cited above said.
After that, it can offer these merchants credit, cross-sell other financial services, and make enough revenue from core payments to shore up its top line, they added.
In a sense, offline is the only avenue open to the company at the moment for new business as the Reserve Bank of India has halted Paytm’s online merchant acquisition business because of issues with its payment aggregator licence application.
Also read | Paytm’s merchant payment push continues as June numbers show
This is not the first time Paytm has tried to woo offline merchants. It was indeed one of the first wallet companies to push QR codes at retail outlets across the country. It has strong competition from the likes of PhonePe and BharatPe in that space.
So, Paytm is now looking to grab merchants who take subscription packs, people cited above said.
A merchant with a soundbox (which provides instant audio confirmation of a payment), or a point-of-sale (PoS) terminal, is more likely to stick with Paytm and build a strong banking relationship with the company, they said.
Paytm did not respond to emailed queries as of press time Thursday.
Also read | Decoding Paytm’s aggressive lending and collections playbook
Aggressive Push
At the end of June, Paytm had 7.9 million payment acceptance instruments deployed at retail outlets across the country. The company deployed about 400,000 terminals in June alone.
ET has seen multiple pitches made by Paytm sales executives to merchants who needed digital payment solutions.
In a pitch to a large pharmacy chain that needed more than 100 terminals, Paytm offered a QR incentive of Rs 40 lakh per annum, provided the chain deployed at least 100 terminals. Another condition was that the retailer would offer customers checkout credit solutions such as Paytm Postpaid or easy EMI options.
The Rs 40-lakh incentive would amount to a small percentage of the transactions processed by 100 terminals, which would typically amount to hundreds of crores in a 12-month period, people cited above said.
On top of this, the listed fintech also offered to waive the security deposit of Rs 15,000 and per-terminal charge of Rs 2,000 for the pharmacy chain.
Paytm is charging merchants normal merchant discount rates (MDR), that is, charges that a merchant pays banks for using digital payment services.
“Actually, the cashback that is being offered is almost in the range of the MDR a merchant typically has to shell out for digital payments,” said a top executive at an organised retail outlet, who has seen the pitch decks. “The cashback gets settled along with the settlements that Paytm does after processing the transactions for the merchant.”
ET also reviewed Paytm’s pitch to a large automobile dealer. There, the offer for cashback was Rs 4 lakh and the minimum device deployment target was around 20.
In one of the pitch mails, Paytm offered all QR code and card payments, contactless payments, all manner of EMI offers, cloud support, instant settlements, and a host of other facilities. It offered most of these services at zero cost.
“Such aggressive offers are new to the offline market,” said the top fintech executive quoted earlier. “In the past, large merchants would get preferential rates or added services — cashbacks for merchant payments were never heard of… It will be interesting to see how many of these merchants stick on after the cashback schemes stop,” the person added.
Working with banks
Paytm is working as a merchant acquirer in this case. In terms of banking, these merchants are being served only by traditional banks, as the central bank has halted new customer additions for Paytm Payments Bank.
A top executive at a rival fintech told ET that Paytm is mainly onboarding merchants for private sector lender HDFC Bank. It was working for ICICI Bank as well in the past, but that partnership has stopped, the person said.
Queries emailed to Paytm, ICICI Bank and HDFC Bank did not elicit a response till press time Thursday.
People in the know said Paytm is leveraging its relationship with banks to go after new merchants and target merchants working with rival PoS players such as MSwipe, Innoviti Payments or PineLabs, or other major banks.
According to RBI data, as of May 2023, there were around 7.9 million hardware card-swipe PoS terminals in the country, 29% more than the 6.1 million terminals as of May 2022.
Also read | Paytm CEO Vijay Shekhar Sharma expects more revenues from expanding UPI use cases
In terms of QR codes, 27.2 crore stickers had been deployed as of May 2023, up 41% from 19.2 crore in May 2022, the central bank data showed.
Paytm has grown many times faster than the overall market. The number of its payment terminals – including both PoS machines and QR codes – has more than doubled since May 2022 when it had 3.4 million terminals deployed at merchant outlets.
As it woos merchants with incentives, Paytm is spending less on reaching out to consumers.
“Paytm has drastically reduced its advertising and promotional expenses by cutting down on cricket sponsorship and television commercials,” one of the executives quoted above said. “It is rather focused on these merchants, and the expenses incurred here will help Paytm become the main payment company in the country.”
Many industry insiders expressed concern that Paytm’s move will disrupt the merchant payment market, which has been a cash flow-positive business, perhaps not in a good way.
The rival executives, however, said they are confident that the merchants who join Paytm for cashbacks would not stick around once it stops dangling those carrots.